Commercial Times: Dissecting myths about free trade

2012/06/26 19:59:22

The government and the public are concerned about free trade because of the lingering dispute over beef imports from the United States. But what exactly does free trade mean?

President Ma Ying-jeou has said many times that if Taiwan does not allow U.S. beef imports containing the leanness-enhancing drug ractopamine, the global community will doubt the country's promises to push for liberalized trade.

Ma has also reiterated that if talks on the Taiwan-U.S. Trade and Investment Framework Agreement (TIFA) fail to resume, Taiwan could be left out of the ongoing regional integration .

His statements seemed to lead to a conclusion that "if the U.S. beef row is not resolved, Taiwan's free trade is false and the country will be marginalized."

However, these seemingly logical inferences need to be examined in order to be understood correctly.

First of all, should Taiwan be this nervous over the hiatus in the TIFA talks? Anyone that has some knowledge about the talks over the last 18 years will know that the U.S. has often put off negotiations using excuses.

For instance, the second TIFA meeting scheduled for early 1996 was twice delayed. The fourth one, slated for late 2002, was also postponed until the end of 2004.

Looking at past experience, Taiwan should not be surprised by Washington's reluctance to resume TIFA talks, but the authorities should watch the situation closely and respond appropriately.

Further, will resumed TIFA negotiations lead to free trade agreement (FTA) talks? History has some hints.

Taiwan attempted to talk about an FTA during the first TIFA meeting in 1995 but was rebuffed by the U.S., which said it was busy discussing FTAs with the other American countries and was not ready to discuss the issue with Taiwan.

For more than a decade, Washington has been trying to force Taiwan to revise its copyright and patent laws, as well as open its doors to U.S. beef. However, the U.S. has also rejected every Taiwanese proposal to discuss an FTA.

Moreover, the argument that "without FTAs, Taiwan will be marginalized" also needs to be further discussed. Actually, the WTO has lowered tariffs and has opened markets for its members, many of whom have granted each other duty-free privileges.

In other words, without FTAs with the U.S. and Europe, Taiwan will surely be disadvantaged in terms of tariffs on certain products. However, as a WTO member, it is unlikely to be isolated.

As a matter of fact, most people tend to believe that the more FTAs a country signs, the more competitive its exports will become. But is that really true?

Take the North American Free Trade Agreement between the U.S., Canada and Mexico that took effect in 1994 as an example: The pact has indeed helped boost the market share for Mexican products in the United States.

However, Canadian products have seen a drop in their U.S. market share from 19.2 percent prior to the inking of the pact to 14.3 percent in 2011.

Looking at the FTA between China and the Association of Southeast Asian Nations (ASEAN), from 2005, tarrifs on their agricultural produce and manufactured goods were lowered. A free trade zone called "ASEAN plus one" was formed Jan. 1, 2010.

However, the 10 ASEAN members suffered a decline in shares in the Chinese market from 11.5 percent in 2003 to 10.6 percent in the first four months of 2012.

These two examples point out one thing -- that FTAs are not a panacea for boosting exports.

If the government wants to sign an agreement that can reduce the impact of free trade on local industries and help make Taiwan's exports more competitive, it should consult the main negotiators in the WTO membership talks and learn from their experiences. (Editorial abstract -- June 26, 2012)